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Startups and the search for Canada’s untapped mother lode

Canada has been a resource-based economy ever since settlers first started shipping beaver pelts to Europe. Since the time of the beaver, Canada has built an economy on mining, forestry, fishing and, most recently, oil and gas.

Because of Canada’s vast storehouse of natural wealth we’ve managed to create one of the richest countries in the world with an enviable standard of living. But in order for Canadians to maintain our current high quality of life, we need to rethink how we’re building our economy.

There are two fundamental ways to make money: The first is to sell assets; the second is to create something new – something that has value – and extract a yield.

In terms of risk it’s a lot safer to cut down trees than it is to try to build the next Apple. It’s less risky to pull fish out of the North Atlantic than it is to try and get a billion people to visit your website every month. I’m not suggesting that logging companies and commercial fisheries have an easy gig – far from it – but in the case of resource extraction there’s no question of product/market fit. You may not know the daily price of cod or sweet crude but you know that at some point people will eat it or put it into a gas tank. But with new disruptive technologies it’s never clear at the outset whether people will use what you build.

In Canada, because we have such an abundance of natural resources, it’s become part of our national character to choose resource extraction over invention. I’m not saying that there hasn’t been world-class creativity in the resource sector. The innovation in the oil and gas industry in Canada is second to none and the TSX is where the world raises capital to find and commercialize resources. But ultimately resource extraction amounts to the selling of assets and not the creation of new value.

Although the discovery and processing of new deposits relies on advanced technology, the gold, oil and old growth trees that we sell represent the clearing out of our national bank account. Even with so-called renewable resources like forestry, we’ll never get old growth forests back.

But is there another way? The answer – “yes” – requires that we think beyond the beaver, that we embrace risk, and that we strive to build high growth companies and create value rather than simply liquidating it.

In B.C. one of the most contentious political issues is the proposed development of the Enbridge pipeline. The argument given to British Columbians is that the pipeline represents revenue of $28 billion over 25 years. This is presented as a once in a lifetime windfall that cannot logically be resisted, but when you look at it, that’s not a ton of dough. It works out to about a billion dollars annually. That’s only about 10 times what Vancouver’s Hootsuite expects to make this year. Seattle’s Amazon makes $25 billion in 6 months. To put that in perspective, Amazon is worth over 1,200 times what the Enbridge pipeline is in terms of revenue.

But building the next Amazon – as opposed to cutting it down – requires a willingness to take the kind of risk that Canadians have been reluctant to contemplate. Betting our pristine coastlines and natural wilderness comes easy to many Canadians but when it comes to our money we are recklessly cautious. Early and late stage startups require bold ambitions and the willingness to invest in our people and their vision.

So the next time you find yourself in an argument about the future of Canada’s economy, remember that the most valuable resource we control is not our water, our oil, our fish stocks or our forests. It is our people and their ideas. That’s where we’re going to find the next great mother lode.

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